Crop Insurance Overload

October 31, 2012 03:50 PM
Crop Insurance Overload

Payments coming, but might be late

Insurance claims could be at record levels this year for corn and soybeans. This means it might take a little longer than normal to get paid, officials say, but it all depends on where producers are located.

Minnesota agents at the state’s Crop Insurance Conference say their claims are not excessively  high, while one South Dakota agent says that virtually all policyholders in his market area have filed or will likely file a claim. USDA–Risk Management Agency (RMA) administrator William Murphy agrees, noting that in some areas, claims are in excess of 90%, but that they are lower  than that in parts of Iowa and Minnesota.

"We’re going to have a lot of claims in excess of $200,000 this year," Murphy says. There are  fears that crop insurance payments will be so big this year that the federal program will receive unwanted attention.

"Crop insurance is going to be a big bull’s-eye as anti-farm groups look for somewhere to move after tackling direct payments," says Jim Wiesemeyer, vice president of Informa Economics. He thinks opponents are likely to press Congress to cap payments and attack crop insurance subsidies.

Murphy says his group, which oversees the crop insurance program, is now a target of the  Environmental Working Group. "This group has been a strong opponent of direct farm payments in the past and we’re getting a potshot—even though federal crop insurance has been a highly successful program with a good track record," he notes.

Eighty percent of the crop insurance program is predicated on average production history (APH),
and in Murphy’s view, audits are important to prove that dollars are being spent wisely and fairly.

"If people just look at APH as smoke and mirrors, the whole program is in jeopardy," Murphy says. He explains that crop insurance companies are shock-tested by RMA every year, and  companies overall are actually in very good shape financially, following more than a decade’s worth of profits for many.

RMA requires that insurance companies be able to withstand two years of high losses before they are allowed to sell insurance. Moreover, USDA will step up and pay claims if for some reason  companies are not able. Program funding is an open-ended commitment under congressional law. Furthermore, Murphy does not believe funding is contingent on whether a farm bill is passed or the present one extended.

Positive Participation. A significant difference this year compared to 1988’s drought is that  participation in the crop insurance program is roughly three times higher—about 75% of corn and soybean acreage is covered versus only 25% in 1988, creating higher exposure to the federal government’s program.

Murphy says that as claims are still coming in, he’s "not comfortable" making an estimate of how high claim losses will be, both in total and in terms of government exposure. "It will be worse than last year," he states. Last year, claims were in excess of $10 billion.

Currently, program officials are considering extending the program into the specialty crops arena to help offset risks for those growers.

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